Inflation pinches even the middle class now

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Even amid hopes that we are at a “peak” of inflation, it is clear that consumers on both sides of the Atlantic are caving in to the weight of higher prices.

Until recently, most of the pain was concentrated among low-income households. But lately, the pressure has also extended to more affluent buyers.

Last week, Kohl’s Corp. blamed its second profit warning in three months on its key middle-class customers becoming more cost-conscious – noting that people were making fewer trips to its department stores, spending less when visiting and redeeming national brands to less expensive private brands. Late Tuesday, Nordstrom Inc., which attracts a more upscale customer base than most retailers, cut its full-year outlook as the bottom of that base entrenched, such as those buying into its business at broken.

Some of Kohl’s wounds are self-inflicted. He made some questionable fashion choices, like betting big on athleisure just as Americans were starting to dress up again. But a shift in mid-market spending is plausible. In July, middle-income people suffered the biggest contraction in their purchasing power, according to Morning Consult. Even among high earners, fewer said they had money after paying monthly expenses, according to the consumer insights firm.

This may explain why the wealthiest Americans are increasingly demanding. Last week, Walmart Inc. Chief Executive Doug McMillon said households earning more than $100,000 were visiting its big-box stores more frequently.

It’s a similar picture when it comes to restaurants. Although the busiest diners spend less at fast food outlets such as McDonalds Corp., their wealthier counterparts visit them more. Chipotle Mexican Grill Inc. said last month that high-income customers were down from more expensive restaurants. Dine Brands Global Inc., the owner of Applebees and IHOP, also said it was seeing slightly fewer customers with household incomes below $50,000, while customer visits bringing in more than $75. 000 had increased significantly and that the average cohort was stable to slightly increasing.

As top earners spent more on restaurants in June than a year earlier, according to Morning Consult, they are starting to pull the purse strings at the margins. For example, fewer households with an annual income of $100,000 or more reported ordering takeout several times a week. This may reflect that they are spending more time away from home, but it may also be that inflation, along with high borrowing costs and depleted savings, is taking its toll.

Not only are consumers turning to value-oriented retailers and restaurants, but they are also changing the types of products they buy or putting fewer items in their baskets. In retail jargon, this is called “compound” inflation, so the amount shoppers spend on food each week increases by less than the overall inflation rate.

Low-income consumers still do the most to control their food budget. For example, they are more likely than more affluent shoppers to buy private label products, according to Morning Consult. (However, higher income brackets cut coupons just as much.)

But the shift to supermarket-owned brands is so broad that it is unlikely to be confined to a single income class. U.S. private label grocery sales accelerated further in July, according to IRI. In Europe, food price inflation should have boosted sales of private label products in Western European countries in July and August. This helps supermarkets to develop more premium house brands. For example, Aldi, the privately held German retailer expanding across the United States, offers its line of specially curated gourmet foods, including sourdough bread and maple syrup.

Tyson Foods Inc., the largest meat producer in the United States, said shoppers had started swapping premium steaks for cheaper cuts of beef. And Beyond Meat Inc. said consumers are reverting meat alternatives — which are always more expensive than animal protein — back to reality. In lean times, consumers are less likely to experiment with alternative foods such as fake meat. It’s a blow to retailers and food companies that have piled into plant-based foods, salivating at predictions from Barclays Plc analysts that the market could be worth around $140 billion globally by now. around 2030. US sales of meat substitutes fell 8.8% during the year. to August 7 according to IRI.

Of course, many consumers continue to spend, either because they don’t feel the pinch yet, or because they just don’t want to be without life’s goodies, from a Starbucks coffee to a Canada Goose coat. . Nordstrom Inc. said this week that the wealthy continued to splurge on new outfits and accessories, while Macy’s Inc. said those earning $150,000 and more continued to spend “at very high levels.”

If inflation has peaked, a further contraction in purchasing power can be avoided. Walmart said sales were stronger in late July and early August, reflecting lower gas prices and the return of schools to in-person learning. This bodes well for the latter part of the year, which contains major spending occasions such as Halloween and the winter holidays.

But if the recent rise turns out to be a false dawn, expect more shifts in buying habits – and not just among the strained ones. Even American luxury could be caught in the crossfire. In fact, if things take a turn for the worse, the next shoe to drop could be a designer.

More from Bloomberg Opinion:

• Resist the siren song of 40-year mortgages: Alexis Leondis

• Scientists love to issue warnings. Here is one for them: Faye Flam

• College students and pet owners should also beware of monkeypox: Therese Raphael and Sam Fazeli

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

More stories like this are available at bloomberg.com/opinion

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